Monday, August 30, 2010

How price sensitive are you?

Gordon from We Fly Spitfires is wondering how it comes that some people are discovering EQ2 only now, that it went Free2Play, when in fact the game is older than WoW (by two weeks). He thinks that this is due to marketing, but an economist would give a very different explanation: The demand curve. Economic theory predicts that the demand for something goes up when its price goes down. That even works if the lower price is just an illusion, because once you buy this and that in the item shop of Everquest 2 Extended, you end up spending more money on it than if you had bought the regular version with the monthly subscription.

But that is the beauty of the Free2Play business model: Some people are reluctant to sign up for subscriptions. And most game companies are extremely stupid about it, demanding your credit card details before you get to play, in spite of you already having paid for the first month by buying the box. Behavioral economics are full of studies that show the difference between opt-in and opt-out plans. While opt-out plans can be profitable due to customers that keep paying because they failed to opt out, that almost invariably leads to some sort of resentment. Thus people who got tricked into some magazine subscription or similar which then ended up being very hard to cancel are understandably reluctant to sign up for future subscriptions to anything else. Opt-in plans don't force potential customers to commit, and thus have the attraction of greater freedom, even if effectively they are often more expensive. Some people buy every issue of their favorite magazine at the newsstand, in spite of a subscription obviously being less expensive.

The unresolved question regarding MMORPG pricing is how price sensitive MMORPG players really are. A monthly subscription MMORPG costs about $200 per year, including buying expansions. That sound expensive compared to a typical $50 computer game, but then that $50 computer game is not likely to entertain you for a year. Most people who moved from single-player games to MMORPGs report spending *less* on games now, because the $200 MMORPG eats up all of their available time, so they don't buy a new $50 game every month. Furthermore the $200 annual subscription is cheap compared with the cost of the computer and internet connection you need to play the game. Playing MMORPGs is also rather cheap if you compare it with other hobbies.

So maybe MMORPG players aren't so much price sensitive as they are committment-averse. That would explain the curious observation that several games reported earning going UP after changing from a monthly subscription to a Free2Play business model. But that suggests it could be possible to create a better monthly subscription model by simply taking out the "subscription" part from the model: You buy the game and get 30 days play-time for free. You aren't asked for your credit card details when you create your account, in fact creating that account might be as easy as just choosing a username and password. Only after 30 days you get a warning that your game time is running out, and given various options on how to buy game time in batches from 30 days to 180 days, from scratch-code game time cards, to PayPal, to buying game time with a credit card. That way people wouldn't feel trapped in a subscription, but the basic price and business model would be exactly the same as in the monthly subscription business model.

So how about you? Are you wary of subscriptions? Or are you rather price sensitive, and it is the actual price tag that prevents you from playing monthly subscription games?